Tax demand

LibDems demand one year VAT cut to ease living costs

Ed Davey: crunch time

Chancellor Rishi Sunak is being urged to cut VAT for one year to protect families from soaring bills and the worsening cost of living crisis.

The Liberal Democrats have proposed a temporary reduction in the standard rate of VAT from 20% to 17.5% to put an average of £600 back into the pockets of UK families.

It comes amid warnings that the war in Ukraine will worsen the cost of living pressures facing households, with energy, food and fuel bills all expected to rise further. Inflation is forecast to reach 8% in April.

The LibDems say the Chancellor should use the Spring Statement on 23 March to bring forward the change and scrap the National Insurance tax hike.

A similar VAT cut in 2008 was found to boost retail sales by about 1%, increasing aggregate expenditure by around 0.4%. Inflation at that time fell from 4.1% to 3.1%.

Reducing VAT to 17.5% would only require a very short and simple statutory instrument. The standard VAT rate can be changed by up to 25% for up to a year through secondary legislation. This means no new primary legislation is required unless the cut needs to stay for longer than a year.

Liberal Democrat leader Ed Davey said: “This is crunch time for the Conservatives and the Chancellor. Their cost of living crisis is hitting families hard and it is about to get worse. Will Rishi Sunak act or will he let families up and down the country suffer more financial pain?

“An emergency cut to VAT is desperately needed for the millions of people around the country worried about making ends meet. High street businesses that fear going to the wall would receive critical support, as people who are feeling the pinch spend more at their local shops, cafes and restaurants.

“This is a once-in-a-generation crisis, and the government must step up to help struggling households and businesses on the brink. Instead of clobbering struggling families with a tax hike, the Chancellor should be putting money back into their pockets.”



Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.